Korean Won Gains to Two-Month High on Exporters; Bonds Advance

May 7 (Bloomberg) -- South Korea’s won strengthened to the
highest level in two months on speculation exporters are
repatriating overseas income to guard against further gains that
erode earnings. Government bonds rose.

The currency advanced 0.3 percent to 1,091.45 per dollar in
Seoul, climbing for a third day, according to data compiled by
Bloomberg. It touched 1,091.31 earlier, the highest since March
8. The won has appreciated 3.9 percent against the greenback in
the past month and 6.9 percent versus the yen, making the
nation’s goods less competitive with Japan.

Hyundai Heavy Industries Co. said yesterday it received a
$700 million order to build the world’s biggest container ships
from 2014, adding to speculation of more dollar inflows. Bank of
Korea Governor Kim Choong Soo said May 5 he expects the yen to
continue to weaken, intensifying competition in industries
including automobiles, according to Yonhap News.

“Exporter dollar sales and expectations for future dollar
supplies from shipbuilders supported the won,” said Hong Seok
Chan, a currency analyst at Daishin Economic Research Institute
in Seoul. “Still, investor concerns that authorities may step
in to try to slow the gains helped limit further appreciation.”

Rate Outlook

Kim said May 5 that last year’s cuts in the benchmark
interest rate totaling 50 basis points were “very big,” Yonhap
News reported. Fourteen of 20 analysts surveyed by Bloomberg
forecast the seven-day repurchase rate will be left at 2.75
percent at a policy meeting on May 9, while six predict a 25
basis-point cut.

The Bank of Korea has kept borrowing costs unchanged since
October, defying pressure from the government for a reduction
even as a weaker yen threatens to hurt exports.

The yield on the 2.75 percent bonds due March 2018 dropped
one basis point to 2.61 percent in Seoul, according to prices
from Korea Exchange Inc. The yield jumped 10 basis points
yesterday, the biggest increase since April 11, after Governor
Kim hinted borrowing costs may be kept unchanged.